Jean Carlos Pejo - Chairman ALAF Brazil October 23, 2014     2sd INTERNATIONAL FORUM OF THE RAIL TARIFF REGULATORS Incentive regulation and attraction of investments in rail infrastructure Jean Carlos Pejo - Chairman ALAF Brazil October 23, 2014

2sd INTERNATIONAL FORUM OF THE RAIL TARIFF REGULATORS Current Situation 10 private operators under concession 1 operator under state management Total Length: 30.000 km Commercial lines: less than 50% Vertical concession model

Vertical Concession Mode The operator is responsible for, construction and maintenance of infrastructure, electrical system and rolling stocks, including yards, warehouses and terminals operation trains, marketing and sale of shipping policy, all logistical operation. Freight tariff policy Regulatory Agency defines the maximum rate as a function of product transported and the distance. Consistent with this condition, the private operator has full freedom to define the value of fare.

Vertical Concession Mode Disadvantages Favors the use of the railroad to the owner shareholders Favors the operation only to more profitable segments, Selectivity of clients, Facilitates the centralization of power and cartelization Allows sections under concession with low quality maintenance

Transport Matrix Roads & Trucks 60 % Railways 24 % Waterway 12 % Pipelines 3,6 % Air 0,4 % High Logistic Costs

PIL Logistic Investment Program TARGET Build new railways to integrate the areas of highest concentration of agricultural production and mineral extraction to the ports Construction of approximately 11,000 km of heavy haul railway Implement the model of horizontal management , to allow the operating system to “open access” Encourage the use of rail and thereby allow considerably increase the share of rail transport in the modal matrix

Horizontal Concession Manager of Railway Infrastructure (GIF) The infrastructure manager is responsible for the construction and maintenance of permanent way, the courtyards, the fixed electrical systems (signaling, energy, etc), and will be the operator of the Operational Control Center. The GIF is responsible to provide for the various train operators the operational slots Independent Rail Operator (OFI) Responsible for the rolling stock fleet (owned or rented) Responsible for drivers Responsible for the operation of trains Responsible for the supply of lubricants and fuels Responsible for the implementation of terminals Must pay for the use of slot

PIL Logistic Investment Program Role of Government The government assumes 100% of the demand risk . A State Company (Valec) will buy all slots from de GIF (Infrastructure Company) BNDES ( Brazil Develop and Social Bank) may financial until 70% of CAPEX, in special conditions of interest rates and terms Before the beginning of the construction the GIF can receive 15% of CAPEX in advanced payment, due the receivables from the sale of slots It will be 12 branches Concession/PPP - 35 years

PIL Freight tariff policy Role of Government At the time it was placed to the market, the proposed expressions of interest for 6 sections of new railways, totaling 4300 km in length. This phase is expected to be completed in May / 2015. In this context it is possible to bid on the first PPP (Public Private Partnership) in the 2nd half of 2015 Freight tariff policy The VALEC (government company) will be responsible for the sale of slots to OFI (Independent Rail Operators). The OFI will have the task of selling the shipping to end customers) .

2sd INTERNATIONAL FORUM OF THE RAIL TARIFF REGULATORS Conclusions With the construction of the railroad in the regions of strong agricultural production, this modal will be chosen by farmers to reach ports The Horizontal model will allow the entry of new operators in the logistics business and can motivate them to leave the road transportation to the railroad The number of customers of railways in Brazil remains small, maintaining the conditions of the period of state management (before 1997). Probably the change of the concession model corrects this distortion. New Matrix – Forecast 2023 Roads & Trucks 33 % Railways 32 % Waterway 29 % Pipelines 5 % Air 1%

2sd INTERNATIONAL FORUM OF THE RAIL TARIFF REGULATORS большое спасибо ! Thank you so much! Muito Obrigado! Jean Carlos Pejo ALAF – Brasil Jean.pejo8@gmail.com Facebook: Jean Pejo